United States v. Eric Bloom
2017 U.S. App. LEXIS 958
| 7th Cir. | 2017Background
- Sentinel Management Group, an investment manager and CFTC-registered FCM, promised clients segregated, high-quality, short-term investments (two public pools: “125/Seg 1” for FCM customer funds and “Prime/Seg 3” for non-FCM or house funds) and same-day liquidity.
- In practice Sentinel used pooled customer securities as collateral for repurchase agreements and a large Bank of New York loan, funded highly leveraged proprietary trading in a separate house account, and reallocated yields among accounts.
- By mid‑2007 Sentinel was highly leveraged, suffered counterparty pushbacks, faced large redemptions, and collapsed in August 2007; the company filed bankruptcy and losses exceeded $600 million.
- A 2012 indictment charged Eric Bloom (Sentinel’s CEO) with 18 counts of wire fraud and one count of investment adviser fraud based on three theories: (1) using customer funds as collateral for house trading, (2) manipulating client yield rates, and (3) soliciting/accepting deposits while knowing collapse was imminent.
- A jury convicted Bloom on all counts; the district court calculated a Guidelines loss of $666 million (yielding a life range) but imposed a 168‑month sentence after applying 18 U.S.C. § 3553(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence | Evidence shows Bloom knowingly used customer funds as collateral, manipulated yields, and solicited funds knowing collapse was imminent | Losses were from market factors and Mosley’s trading, not Bloom’s fraud; insufficient proof of intent or participation | Convictions upheld; evidence sufficient on all three theories |
| Prosecutorial misconduct | Prosecution’s arguments were reasonable inferences from the record | Prosecutor misled jury about calls, spreadsheets, and funding; improperly attacked defense counsel | No misconduct warranting new trial; arguments were fair inferences and court cautioned jury as needed |
| Jury instruction on CFTC Rule 1.25 | Not central; full text given; interpretation is a legal question for judge | Requested instruction that Rule 1.25 permits leverage (or does not prohibit it) should have been given | No reversible error: Rule 1.25 was a minor issue, and proposed instruction could mislead even under defense expert’s view |
| Evidentiary rulings (agent/employee statements) | Admitted statements were admissible and corroborated; some admitted under co‑conspirator or business‑records theories | Admission under Fed. R. Evid. 801(d)(2)(D) was erroneous and critical to proving intent | Any error was harmless; several statements admitted on alternative grounds and did not affect substantial rights |
| Sentencing loss calculation | Loss attributable to Bloom’s fraud justified $666M loss figure | Losses attributable to market collapse, Mosley, and non‑inducement; guideline overstates blame | Guidelines calculation not reversible error because district court imposed 168 months based on §3553(a) regardless of guideline range |
Key Cases Cited
- SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963) (investment advisers owe fiduciary duty of utmost good faith and full disclosure)
- United States v. Booker, 543 U.S. 220 (2005) (Sentencing Guidelines are advisory)
- United States v. Pust, 798 F.3d 597 (7th Cir. 2015) (standard for reviewing sufficiency of evidence)
- United States v. Lupton, 620 F.3d 790 (7th Cir. 2010) (interpretation of statutes/regulations is for the court, not expert witnesses)
- United States v. Lopez, 634 F.3d 948 (7th Cir. 2011) (district court may rely on §3553(a) and state that sentence would stand regardless of guideline technicalities)